Post on 06-Mar-2018
Sales and Operations Planning Maturity: What Does It Take to Get and Stay There?
Gartner RAS Core Research Note G00207249, Jane Barrett, Michael Uskert, 1 November 2010, R3535 12162011
Companies with mature S&OP processes testify to the predictability and transparency it brings to a business. While neither the process nor this revelation is new, the fact is that two-thirds of businesses do not progress beyond the first two stages of Gartner’s 4-stage maturity model. It’s in the mature Stage 3 and 4 where S&OP derives real business value. This report highlights findings that Stage 3 or Stage 4 companies go well beyond traditional S&OP methodologies that define supply chain process used to balance demand and supply (Stage 2). To achieve Gartner’s definition of Stage 3 or Stage 4 S&OP, these companies change not only the process and technology, but more importantly address ownership, culture, core beliefs and even the name of the process itself.
Key Findings
• BeyondStage2,traditionalS&OPmethodologyisnolongersufficientandtheprocessmustbetailoredtothespecificneedsofanorganization.
• Inmostorganizationstherewasacompellingbusinesseventthatprecipitatedthechangefromthetop,andgaveclaritytotheS&OPjourneyandvision.
• OncetheS&OPprocessmatures,itisnolongerownedbysupplychainbutbybusinessleaders.
• Momentumbuildsasbusinessleadersderivevaluefromtheprocessanditbecomestheprimaryforumfordecisionmaking.
• WherethetermS&OPwastainted,organizationsrenamedandrebrandedtheprocess.
Recommendations
• AssessyourlevelofS&OPmaturityinordertobuildaroadmaptoevolvethroughthestages.
• Haveaclear,executive-ledbusinessmotiveandcommonbusinessmetricsthattranscendsfunctionalareatobreakdownsilos,andthatdrivesactiveparticipationandinvestmentintheprocess.
2
• Identifycoachesandprovidetoolstohelpsustaintheprocessandmanagechange.
• Designtheprocesstofitthenuancesofthebusiness.Consideramultitierapproachtocatertodifferentplanninghorizonsandbusinessmodels.
• Determinetherightbalancebetweenprocessimprovementandenablingtechnologies.
ANALYSIS
Background to the ResearchInAugust2009,weanalyzedtheresultsfromastudyof182manufacturersandretailersandfoundthat67%ofcompanieswerestillinStage1orStage2ofoursalesandoperations
planning(S&OP)maturitymodel(seeFigure1).Thisinabilitytomatureoccursdespiteheavyinvestmentsmadeincontinuousimprovement,consultingandtechnology.Gartneranalystsinteractionwithclientsacrossmanufacturingandretailindustriesvalidatedthesesurveyresults.Usingthisinformation,wepublished“ConqueringtheSevenDeadlyChallengesofSalesandOperationsPlanning”wherewefocusedontheneedforchangemanagementinordertomovetheprocessforward.Butonespecificquestionkeptcomingup:“HowexactlydocompaniesmovebeyondStage2,andhowdotheysustainamatureprocess?”
Thisquestioninstigatedtheneedforfurtherresearchthisyear.EighteencompaniesthatwebelievedhadachievedS&OPStage3wereidentifiedandinterviewedtohelpusanswerthisquestion.Thesecompaniesarelargemanufacturers,whereeitheralltheorganizationorspecificbusinessunitsorregionshadachievedStage3orStage4S&OPmaturity.Theirrevenuerangedfrom
©2010Gartner,Inc.and/oritsaffiliates.Allrightsreserved.GartnerisaregisteredtrademarkofGartner,Inc.oritsaffiliates.ThispublicationmaynotbereproducedordistributedinanyformwithoutGartner’spriorwrittenpermission.Theinformationcontainedinthispublicationhasbeenobtainedfromsourcesbelievedtobereliable.Gartnerdisclaimsallwarrantiesastotheaccuracy,completenessoradequacyofsuchinformationandshallhavenoliabilityforerrors,omissionsorinadequaciesinsuchinformation.ThispublicationconsistsoftheopinionsofGartner’sresearchorganizationandshouldnotbeconstruedasstatementsoffact.Theopinionsexpressedhereinaresubjecttochangewithoutnotice.AlthoughGartnerresearchmayincludeadiscussionofrelatedlegalissues,Gartnerdoesnotprovidelegaladviceorservicesanditsresearchshouldnotbeconstruedorusedassuch.Gartnerisapubliccompany,anditsshareholdersmayincludefirmsandfundsthathavefinancialinterestsinentitiescoveredinGartnerresearch.Gartner’sBoardofDirectorsmayincludeseniormanagersofthesefirmsorfunds.Gartnerresearchisproducedindependentlybyitsresearchorganizationwithoutinputorinfluencefromthesefirms,fundsortheirmanagers.ForfurtherinformationontheindependenceandintegrityofGartnerresearch,see“GuidingPrinciplesonIndependenceandObjectivity”onitswebsite,http://www.gartner.com/technology/about/ombudsman/omb_guide2.jsp
Figure 1. S&OP Maturity Model
Source:Gartner(October2010)
Strategy Stage 1:Reacting
Stage 2:Anticipating
Stage 3:Collaborating
Stage 4:Orchestrating
Balance: S&OP
Section 1: Goals
Development of an operational plan
Demand and supply matching
Profitability Demand sensing, and conscious trade-offs for
demand shaping to drive an optimized demand response
Section 2: Cross-Functional Alignment
Supply Chain driven process with a strong sales or operational bias leading to imbalance. Lack of clarity as to the goal of S&OP.
Supply Chain driven process for purposes of achieving optimum forecast and supply response to demand
Supply Chain becomes the S&OP orchestrator and business functions take ownership of input, output and results, looking at financial impact of decisions
Business ownership at multiple levels with strong participation from executives and finance. Collaboration extends beyond the enterprise to achieve end-to-end value.
Section 3: Process and Technology
Emerging process, inconsistent and marginally effective. Often more of a sales review meeting. Tools are mainly Excel and ERP.
Formal, structured process. One size fits all approach. Tools extend to include forecasting, SC planning and inventory optimization
Process tailored to business model and needs. Dialogue, and start of use of tools, around what-if analysis for demand shaping, financial reconciliation and cost to serve.
Process becomes balanced, dynamic and event-driven. Strong connection to strategic planning and execution. Tools also support risk-value trade-offs, price optimization and complex simulation.
Increase in Organizational Balance
3between$2billionand$60billionandcamefromthechemical,consumerproducts/foodandbeverage(CP/F&B),apparel,hightech,industrialandA&Dindustrysectors.Itwasobviousinspeakingwiththesecompaniesthattheywereabletoclearlyidentifythematuritylevelofthevariousdivisionsorregions,andtheycouldrecitetheassociatedbenefitstheyachievedfromS&OP,aswellastellusthecharacteristicsandreasonswhysomepartsofthebusinesswereaheadofothers.Thefindingsfromthese18interviewswerefascinating,andtogetherwithinsightsgleanedfromtheAugust2009survey,formthebasisofthisreport.
Stuck in Neutral in Stage 2Asthesayinggoes,“inordertounderstandwherewearegoing,wemustfirstunderstandwhereweare.”Toaddressthisissue,weuseGartner’s4-stageS&OPmaturitymodeltodescribecharacteristicsofaStage2process.
AgoodStage2processtypicallyfollowsthetraditionalS&OPdemand/supplybalancingmethodologybasedonvolume.Itisastrongfoundationtosupportsupplychaindecisions.Atthislevelofmaturity,theorganizationhasalreadyaddressedtheneedtohaveaccurate,credibledatainvolume/units.Inmostcases,becausethedialoguecentersonvolume,SKUcapacityandleadtimes,S&OPownershipremainsstuckinsupplychain.
Demandplannershaveprogressedbeyondjuststatisticalforecasting,andelicitsalesandmarketinginvolvementtoprovidetheircustomerandmarketintelligenceasinputtothedemandplan.CommercialteamsandplannersinlateStage2havefiguredouttherightapproachtostatisticalforecastingtechniques,whatmanualtouchesaddvalueandhowtomeasuretheimpactofthesechangesastheforecastisreviewedthroughmultiplestages.Somehaveevenstartedmeasuringforecastvalueadd(FVA)percentagetomonitortheadditionalvalueofthesetouches.
Translationofdemandintosupplyplanstendstobeabitclunkyatthisstage,butpre-S&OPmeetingsinvolvingtherightpeopleandalotofmanualeffortmanagetogetthistaskcompleted.Constraintssuchasassets,materialsandresourcesaretakenintoconsiderationanddiscussedastheyrelatetomeetingthevolumeplan.AstrongStage2processhasformalgovernanceandgooddiscipline.
OneoftheissuesinStage2istheplanninghorizonaroundwhichdialogueanddecisionsshouldbecentered.Toooftenthediscussiondoesnotprogressbeyondtheshort-termplanninghorizon(0to3months).AnotherissuecompaniesfaceislinkingS&OPtoexecution.DecisionsandassumptionsmadeintheS&OPmeetingsdonotmaketheirwaydowntothelowerlevelprocesses.
What Does a Collaborative Stage 3 S&OP Process Look Like?InStage3,theS&OPprocessfocusesonamidtermplanninghorizon,typically3to24months(thiscandifferbyindustry).Thegoalistomaximizemarketopportunity,profitabilityandcustomersatisfactionwhileminimizingrisk.ButthisisafairlytypicalS&OPdefinition,anditdoesnotreallydescribethecharacteristicsofamatureprocess.WhilemostorganizationsuseatextbookstyleS&OPprocesstogettoStage2,Stage3organizationsfoundthatthetraditionalprocessonlyservedtoformthefoundationofamoretailoredprocesstocome.
TheStage3processisspecificallydesignedandpersonalizedtomaptothespecificbusinessorregionalneeds,planninghorizonsand,insomecases,evendifferentvaluechains.Thetraditionalapproachisadaptedwhereneeded,sometimesresultinginmultiplelevelsofprocesses.It’sapparentthattheone-size-fits-allprocessdoesnotpromotecompaniestoStage3.Theprocessneedstobeglobal—wheretherearesharedoroverlappingresources—butlocalwhereagilityoftheprocessneedstobemaintained.Insomecases,theoperationalprocessfocusedontheshorttermremainedatthelocallevel,whiletheglobalprocesswasaggregatedandaddressedamidtermplanninghorizon.NocommonalityofS&OPdesignstoodoutinthecompaniesweinterviewed,otherthanlayeringtheprocesstofitthematrixstructureandthescopebusinessesneedtodealwith.Theprocesswasclearlydesignedaroundthelevelatwhichgoodbusinessdecisionsneededtobemade.Thisiskey,becauseoncetheprocessmovestoStage3itisnolongerasupplychainprocess,butratheranalignedbusinessplanningprocess.
ItbecameclearfromourdiscussionsthatinStage3,S&OPistheforumfordecisionmaking,andbusinessleadersembracethemeetingsandactivelyparticipate.Theprocessgrowsbeyondsupplychainandencompassesalignmentofthefunctionsandline-of-businessownership.Itisusedtotranslateopportunitiesintheformofgo-to-marketstrategiesandsolutionsintoactionableandprofitableresponses.Evenwithout“what-if”technologyenablement,meetingshaveactivedialogueonclosingdemandgaps,“what-if”scenarios,risksandranges.Thekeypointisthatthisactivityanddecisionmakingoccursataseniorlevel.Thishappensbecausestakeholdersparticipateandthefocushasshiftedfromunitstorevenue,profitandthecustomer—whatthebusinesscaresabout.AsoneEuropeanS&OPteamexplained“werealizedourS&OPprocesswasgoodwhenpeopledefertoitastheforumfordecisionmaking.Businessfolksnowvaluetheprocess,thedialogueandopportunitytointeractwithpeersandmakegooddecisions.”Governanceanddisciplinedprocessensuresaccountabilityanddecisionrightsareclear.
Beingacoredecision-makingforum,theprocessmustalsobebalancedandefficient.Exception-basedanalysisanddialoguespeedsupthecyclesandsolvesthescope/speedparadox,reducingtheneedforlengthyandlaboriousmeetings.
Atthislevel,leadershaveinstitutionalizedrapidandeffectivecommunicationbetweenstakeholders.Forexample,inaStage3CPcompany,demandplannersreceivetimelyinformationontradepromotionsandadjustments,andaccountteamsunderstandtheneedforsupplychainplannerstohaveadvancednoticeaboutchangeswithintheiraccountstoincreaseon-shelfavailability.Inthecaseofamanufacturerofcomplexhigh-mixequipment,itwasaboutthesalesteamsrealizingthatsimplysharingquarterlyrevenuenumberswasoflittlehelptosupplychainandmanufacturing’sefforttodeliveraprofitableresponse.Thekeylearningwasthatadvancednoticetothemixwasjustasimportantasclosingtheaggregatedeal.Plannerscollaboratingmorecloselywithaccountteamsandkeycustomershelpedclosethisgap.
Stage3requiresmorefrequentcollaboration,bothinternallyandwithmajortradingpartners,thaninearlierstagestoimprovelong-termdemandinsightsandshort-termdemandsensingcapabilities.Thisgivesthesource,makeanddelivercomponentsofthebusinesstimetomovefromreactingtocustomerorders
4todeterminingthebestandmostprofitablewayoffillingorders.Theuseoftechnologiessupportingtradepromotionmanagement(TPM),vendor-managedinventory(VMI),collaborativeplanningforecastingandreplenishment(CPFR),supplierportalsandothervisibilitytoolshelptosupportthiscollaborationeffort.
Achieving S&OP Stage 3 MaturityOurresearchhasdeterminedasetofquantitativeandqualitativechangesthatenablethemovementfromStage2intoStages3and4ofS&OPmaturity.Thequantitativechangesrevolvearoundprocessorsystem-driveninitiativesthatneedtobeinplaceasenablersofmaturity.Thequalitativechangesaddressthecriticalaspectsofchangemanagement,culture,outlookandfundamentalbeliefsthatareneededtocreatea“pull”forceofchangewithintheorganization,facilitatingfasterS&OPmaturity.
Quantitative Changes
Translating the NumbersOneofthemostchallengingaspectsofS&OPistheabilitytosatisfytheinformationalneedsofdifferentbusinessfunctions(finance,sales,marketing,supplychain)basedoninputfrommultiplesetsofnumbersandforecasts.AtGartner,werefertothisabilityasTranslation.BuildingcapabilitiestotranslatenumbersisacorerequirementtomovefromStage2toStage3.Translationcanbecomplexandisrequiredinmultipleareas(seeFigure2).
Initially,translationcapabilityisheavilydependentuponbuildingtherightmarket-drivenhierarchiestomanagedemand,andthenbeingabletoadaptivelytranslatethisintosupplyplanningmodelsbasedonsupply-sidehierarchies(seeFigure3).CompaniesthathaveachievedStage3areabletodothistranslation,easily,butvolumetranslationisonlythestart.
Financial Integration and ReconciliationAbsolutelycriticaltomovingbeyondStage2demandandsupplymatchingistheactiveparticipationoffinanceintheS&OPprocess.Hereweseeextensiveuseoftranslationtoturnunit/volumeprojectionsintorevenueplans.ForsomeinStage3,thisformsthebasisoftheannualoperatingplans,withcontinueduseonamonthlyorquarterlybasistoensuretheplanismaintained.Thisintegrationandreconciliationgivesarevenueviewversusthetraditionalvolume/unitplans.Thisvieweffectivelycapturestheattentionofcommercial,financeandleadershipteams,asthefinancialimpactoftheplansandsubsequentdecisionsbecomeclear.
InStage3,duetoprofitimplications,thecapabilitytopredictmix,whetheritbeSKU,productlineorconfigurationmix,becomesmoreimportantthanjusttotalvolume.Salesparticipationisessentialinthisprocessfortheplanninghorizonwheretheycanaddvalue.Inenvironmentswherethesales-forceforecastsbasedondealsincurrencyvalues,companiescontinuallywrestlewiththe
Figure 2. S&OP Governance in Stage 3 and 4
Definition Sponsor Senior business leaders, in some companies the CEO
Coordinator Most commonly Supply Chain, occasionally Customer Service
Owner Line-of-business functions, sometimes joint ownership of key S&OP components
KPI focus Demand risk, customer service, profit, cash, market share
Performance focus
Ability to translate opportunities and demand into actionable and profitable response from make, source and deliver functions, understanding the trade-offs and financial impact, conscious choice on decisions
Output focus •3-18/24 month planning horizon •Consensus plans (demand, supply, inventory, product portfolio, mix, revenue) •Demand shaping to close gaps to budget and profit targets •Scenario analysis to understand financial impact of forecast risk, demand shaping, supply constraints, other risks •Investment decisions – inventory, assets, other resources •S&OP demand plan becomes the AOP, and starting point for strategic planning •Plan and related assumptions communicated to relevant stakeholders •Connection to execution through aligned planning processes and shared output
Source:Gartner(October2010)
5problemofthesalesforcehittingrevenuetargets,butthecompanymissingotherfinancialmetrics,likeprofit,duetounpredictedchangesinmix.
Inonecompany,theS&OPprocesshasbecomesotightlyintegratedinthefinancialplanningprocessthattheyarealmostindistinguishable.Here’swhattheprocesslookslike:
• Developmentofthefinancialplan(stepsatofhaverolesintheS&OPprocess).
• (a)Demandplaniscreatedandagreeduponduringthenormalmonthlydemand-consensusprocess(alongwithtradepromotion,pricing,etc.).Thisbecomesthebasisforannualoperatingplan(AOP)/financialbudgetingandstrategicplanning.
• (b)Supplyplaniscalculated,includingfinishedgoods(FG)inventorylevels,productionplansandraw/work-in-progress(WIP)inventorylevels.
• (c)ConstraintsareworkedthroughtheS&OPprocess.
• (d)Resultingvolumeisrunthroughmanufacturingplants/supplychannelstodevelopcosting.
• (e)Inventoryplansarefinalizedforuseincashflowcalculations.
• (f)Inventoryvolumeisplannedthroughthedistributionchannelstodevelopcosting.
• (g)Selling,generalandadministrative(SG&A)budgetsarefinalized.
• (h)Financerollsupthenumberstocalculateaprofitnumber(ifitisundesirable,changesaremadeinstepsatog).
Thisintegrationnotonlyenablestheorganizationtohaveadiscussiononamonthlybasisaroundtherisk-rewardtrade-offsofsupplyanddemand,butalsoenablesdiscussionofprofitimpactandvisibilityintowhetherthecompanyistrackingtoitsfinancialplan.Stepsdandfweretypicallyperformedonaquarterlybasisinsteadofmonthlyduetotheamountoftimeittooktocompletetheprocess.
ThegoalofaStage3/4S&OPprocessistoachievecompanygoals.Thisistypically“profitability,”butinsomecasesmarketsharemaydominate,e.g.,whereabusinessispushingtogrowinaparticularmarketorregion.Theterm“profitability”iswidelyused,butwithuncleardefinition,henceitdeservesfurtheranalysis.OurresearchhighlightedthatinStage3where“profit”isintroducedintotheS&OPdiscussion,itisgenerallycalculatedatagross-profitlevel(thedifferencebetweensalespriceandthecostofgoodssold).Thisisbecauseoftheeaseatwhichcostscanbetieddirectlytoproductcategoriesanditems.Therefore,thevastmajorityofcompaniesthatincludeprofitintheirS&OPdiscussionaretalking
aboutgrossprofit.Eveninmarketswheredrivingrevenuegrowthandmarketsharewereofutmostimportance,keepingcontinuousattentionondeliveringaprofitableresponsewasstillhighlyvalued.ThemainpointandgreatestvalueofdiscussingprofitwithinS&OPistoguidemanagementinmakingtrade-offsanddirectionaldecisions.
Stage2S&OPtypicallydoesnotventureintotheprofitdiscussion,butratherconcentratesongettingdemandandsupplyvolumerightfirst.Oncetheprocessmaturesandprofitabilitybecomesthefocalpointinthemeetings,theprofitdiscussionmustbeatthelevelinthebusinesswheredecisionsneedtobemade.Usingtimehorizonasanexample,intheshort-termplan,theyarediscussingtheprofitabilityoffillingspecificcustomerorders.Inthelong-termhorizon,thediscussionmovestotheprofitabilityofaregionorbusinessunit.Anothermajorfactoristheavailabilityofdata.TocalculatebeyondgrossprofitrequiresalargeamountofcostdatathatwouldneedtobedynamicallyadjustedthroughtheS&OPprocess.Fewcompanieshavemanagedtoefficientlycollectandmanagethedatarequiredtocalculatecost-to-serveordodynamicprofitcalculationsbeyondgrossprofit,withoutmakingmajorassumptionsforcostcategoriesbeyondcostofgoodssold(COGS),andusingtraditionalcostaccountingmethodsforallocationsandabsorptionofcosts.
EmergingcapabilitiesandthosenecessarytomovebeyondStage3are“totalcosttoserve,”orasonecompanycallsit“profitabletoserve.”Intheseorganizations,theyareshiftingtheirdiscussionof“profit”tomeanoperatingprofitorearningsbeforeinterestandtaxes(EBIT).Forexample,inaCPcompany,customer-levelplanningtakesintoaccountpricingtiersandtradepromotions.Goingtothislevel,however,requirestheinclusionofallselling,generalandadministrative(SG&A)andcustomer-specificcosts,whicharemoredifficulttodeterminethananappropriateitem-levelallocation.
Exactlywhatcanbemeasuredwhentalkingaboutprofitabilitytrulydependsonthelevelofdecisionmakingrequired,availabledataandmaturityleveloftheorganization.
Figure 3. Demand Translation Requirements
Source:Gartner(October2010)
SKU
Global
Units
Currency Profit
Customer Product Category
Plant
Demand Plan
Countries Regions
6Proper Alignment of Planning Horizons and Decision-Making ResponsibilityToenablethecorrectlevelofdiscussion,planninghorizonsareclearlydefinedandadheredtowithinStage3meetings.Toavoidthetemptationofslippingintodiscussionofshort-termexecutionissues(0to3months),manyofthecompaniesinterviewedimplementalayeredS&OPprocessfordifferentplanninghorizons.Inonemeeting,theplanninghorizoncateredtotheshort-termexecutionandoperationalissuesoccurringwithinthenextthreemonths,whileasecondprocesswasimplementedthatcoveredmid-tolong-termplanningissues(3to24months).Theyconsiderbothtobepartof“S&OP,”highlightingtheneedforacross-functionalprocessattheoperationallevel,aswellasmoreforwardlookingthatfocusesonalignment,profitabilityandmakingtherighttrade-offs.
Structurally,thesemeetingslookverysimilarandfollowthetraditionalformatofS&OP.Inmanycases,theywereorchestratedbythesameindividual—theS&OPleader.Themaindifferencewasthefrequency,levelofdiscussionandthedecisionmakers.Theshort-termmeetingsoftenoccurredmorefrequently,weeklyversusmonthly,anddiscussionstendedtobearoundunitsrather
thanrevenue/profit.Headsofbusinessattendedthemidtermmonthlymeeting.Wealsofounddifferentplanninghorizonsandstakeholdersfordifferentpartsofthebusiness.Thereneedstobeabsoluteclarityofthehorizonandassurancethattheydonotoverlap,thusintroducingundue“noise”atmultiplelevels(seeFigure4).
Notonlywerecompaniescreatingprocesslayersaroundthetimehorizon,butalsoarounddecision-makingresponsibility.Wesawcompaniesredesigntheplanningorganizationtorecognizetheneedtomanageglobalorchestrationwhilepromotinglocalexecution.Thismeantcreatingandmanagingalignmentbetweentheroleoftheglobalandlocalplanners.
AnexampleofatrulycollaborativeandlayeredS&OPprocessishowLowe’sHomeImprovementandWhirlpoolCorporationworktogether.BecauseWhirlpoolappliancesmakeupsuchahighpercentageofLowe’ssales,theyhaveaseriesofjointmeetingsintheirmonthlycycle,specificallyfortheLowe’s/Whirlpoolpartnership.Thesemeetingsarelayeredtocaterforthevariousplanninghorizons,withanintensefocusoncadenceanddiscipline:
Figure 4. Demand-Supply Translation Hierarchies
Source:Gartner(October2010)
7• OperationalplanningusingCPFRinthe0-to3-monthhorizon,
throughweeklymeetings.ForLowe’sthisisaboutstoreexecutionandlogisticsplanning.ForWhirlpool,itisaboutmanufacturingandlogisticssynchronization.Metricsincludeon-timefillrateandmeanabsolutepercentageerror(MAPE),andthepeopleinvolvedareforecastingteams.
• Merchandiseandoperationsplanningmonthlymeeting,lookingatthe3-to6-monthtimeperiod.Thisisatthemidmanagementlevel.Salesownstheforecastandthediscussioncentersonsellthrough,pricingandpromotionsandrootcausedrivers.ThisissimilartotheWhirlpoolcategoryreviewmeeting,butspecificallytailoredtotheLowe’saccount.
• Strategicaccountplanningfocusedonthe6-to12-monthhorizonbetweenseniorbusinesspartnersfrombothsides.Herejoint-businessobjectivesdrivejoint-strategicplanning.
• C-leveldiscussionstwiceayear,lookingouttwoyears
Whatarethebenefits,andhowdotheyknowtheprocessissuccessful?Peopleshowupandsalesmanagersstarttotakecontrolofthemeetings.Marketshareisimproving,andproductisavailableinthestores.Bothsidesarealignedaroundpromotionalactivities.Simplyput,“WhirlpoolisbuildingwhatLowe’sisselling.”
ManycompaniesthatremaintrappedinStages1and2haveunderestimatedtheneedtohavelayeredandtailoredS&OPprocessesandhowthisimpactstheneedtoredesigntheirplanningorganization.
Simplified Metrics — Measuring SuccessHowdoyoumeasurethesuccessofS&OP?Howdoyouknowtheprocessiseffectiveandimproving?Ultimately,itisthebusinessresultsthatprovethevalue,butalongthewaythereareindicatorstohelpyougaugeprogress.AstrongtrendwesawinorganizationsthatachievedStage3maturitywasthattheyweredatadriven,heldpeopleaccountablefordecisionsandresultsandtooktheemotionandpoliticsoutofthediscussionsbyalignmentaroundacommongoal.
Figure 5. Processes Aligned to Planning Horizons
Source:Gartner(October2010)
Sell Deliver Make Source
Strategic/Long-Term Planning (2 to 5 years)
Strategic Planning and Forecasting
Network Optimization, Strategic Risk Evaluation
Tactical/Midterm Planning (3 to 24 months)
Sales and Operations Planning
Demand Planning
Supply Planning
Inventory Configuration
Supplier Mgt.
Contract Mgt.
Operational/Short-Term Planning (1 week to 12 weeks) Vendor
Managed Inventory (VMI)
Distribution Req. Planning (DRP)
Inventory Policy
Transportation Mgt
Factory Scheduling
Material Req. Planning (MRP)
Sourcing
Execution (order duration to shipment)
Order to Cash Manufacturing Execution
Systems (MES)
Procure to Pay
Note: planning horizons differ by industry depending on product lifecycle and asset investments
Logistics
Execution
Operational Planning/Order Fulfillment
8Thesecompaniesfocusedonasimplified,reducedsetofmetrics.Theytookastepback,foundthose“truenorth”metricswhicharemeasuredattheC-levelanddefinetheoverallbusinessgoals,thencascadedthemdownthroughtheorganizationtodrivealignmentoffunctionsaroundacommongoal.ThereisvisibilityandtransparencyofKPIs,targetsandresultsacrossthecompany,basedonacoresetofstandardmetrics,typicallyincludingrevenue,profit,forecastaccuracy,customerservice,workingcapitalandcostsand,morerecently,aforecastvalue-addmetric.Atthislevelofmaturity,thediscussionhasmovedfromwhatsupplychaincaresabouttowhatbusinessownerscareabout.Thismeansyouhaveorarebuildingthecapabilitiestomeasuredetailedreturnonassets(ROA)oreconomicvalueadded(EVA),costtoserve,cashandforecastaccuracyandvalueadd.
Anelectronicequipmentcompanyestablishedfour“truenorth”metricsatthecompanylevel.Thesewerethentranslatedintoahierarchyofend-to-endmetrics,withcross-functionalownershipattheglobaloperations(supplychainwithabroadspanofcontrol)level.Thiscascadedfurtherintohierarchiesforthevariousfunctions,suchasplanning,manufacturingandprocurement,etc.Thishelpeddrivetherightdecisionsattheoperationallevelandensurealignmenttocompanygoals.
Traditionally,lookedatasanevil(necessaryornot),theroleofinventorychangesinStage3S&OPcompanies.Ittendstobecomeastrategictooltobufferdemandvolatilityorsupplyrisk.Thereisjointownershipofinventorydecisions,oftenthroughacross-functionalinventorycouncilorsteeringcommittee.
Tomeasuresuccessandimprovements,businessunitsand/orregionsarebenchmarkedagainsteachother.Todothis,asetofmetricswithcommondefinitionandaccuratedataareneeded,butalsotheunderstandingofhowdifferentsupplychainsbehavebasedontheirchannel,productandsupplycharacteristics.Wenolongerhear“weneedtobeefficient,agileandflexible”becauseStage3companiesrealizeyoucannotbeallthree,atleastnotinthesamesupplychain.Theyhavedonethesegmentationnecessarytogettothislevelofdifferentiatedsupplyresponse.
Last,butmostimportant,successcanbemeasuredbyalignmentofpeopleandtheshiftfrommakingdecisionsofflineoroutsidetheS&OPmeeting,torecognitionthatS&OPisthecriticaldecision-makingforuminthebusiness.Whenthishappens,youknowyouhavetheculturalfoundationforStage3sustainability.
Qualitative ChangesThefollowingrepresentsthechangesthatleadtoaneffectiveS&OPprocess,butaremoresubjectivethanthetopicspresenteduptothispoint.
Transfer of Ownership — What Instigated the Change?AbsolutelyessentialtogettingtothenextlevelinS&OPisthetransferofownership.Eveninorganizationswhereexecutivemanagementparticipates,Stage1and2S&OPtendstobeownedbysupplychain,mostoftensupplychainmiddlemanagement.InStages3and4,ourresearchhighlightednotonlyactiveparticipation,butactualownershipoftheprocessbyseniorbusinessleadership.Supplychainstillfacilitatestheprocessandexecutesonmanyofthedecisions,butseniorleadershipusestheprocessfordecisionmaking.Atthislevel,clearlythelinesof
business,notsupplychain,ownstheS&OPdecisionsandresults.
Whilewewouldliketosaythatthischangeofownershipoccurredbecauseofasenseofenlightenment,theunfortunaterealityisthatitismostoftenacompellingeventorfinancialcrisisthatcausedseniorleadershiptorecognizetheneedforabettercross-functionalplanningprocess,ownedbythebusinessleadersandnotjustsupplychain.Forapharmaceuticalcompany,ablockbusterdrugwassoontobethreatenedbyagenericequivalent.Foraconsumerelectronicsleader,revenueforamajorproductlinealmosthalvedyear-over-year.
Insomecasesitwaspurefrustrationonthepartofbusinessleadersthatthecurrentplanningprocesswas“outofwhack”—therewaspoorinternalcollaborationandcommunication,andtheywereunabletomovetheneedleoncriticalKPIs.Despiteallthischaos,theyalreadyhadaS&OPprocessinplace,andhadinvestedheavilyinforecastingtechnology,BItools,dataintegration,educationandmore.OneVPofsupplychainstated“IjustcouldnotcontinuetositinfrontoftheCFOeachmonthandadmitIdidnotknowwhatwasgoingoninmybusiness.”
Whicheveritwasthatinstigatedchange,arenewedfocusonanewlydesignedS&OPprocesswasfrequentlyaleadership“mandate,”definitelymorethanjustthecommonly-usedphrase“executivesponsorship,”whichisnecessaryeveninStage2.Thistop-downapproachautomaticallycreatesthecommongoalandvisionaroundwhichS&OPstakeholdersrally.Lackofthiscommongoalisoneofthekeybarriers.
Althoughwerefertoitasownershipinthissection,theword“ownership”seemsinadequateinStage3.Itismorethanjustowningtheprocess.Thereareactuallythreelevelstoconsider:
• Sponsorship—Top-downcommitmentandsupportfortheprocess,withtherightexecutivesactivelyparticipating.
• Ownership—Businessfunctionsowntheirparts.DependingontheS&OPdesign,itmaybesalesandmarketing,ortheGMofadivisionorVPofaregion,thatownsthedemandplan,closelyalignedwiththeplanningteam.
• Coordinator—TheS&OPVPordirector,whoinStage2ownedS&OP,nowownsnothingbuthasacriticalroleinorchestrating,orcoordinatingtheprocess.Thisroleisstillaprocesscoachandfacilitator(sometimescalledorchestrator),butisnotaccountableforanydecisionscomingoutoftheprocess.
TransparencyWhileconductingthisresearch,theword“transparency”wasfrequentlyusedtodescribeamatureprocess.InStage1and2,differingdegreesofgamingstilloccurwithindemand/supplyprojectionstomakemetrics“lookgood.”Whatcamethroughstronglyintheresearchwasthewordtransparencyasacorerequirement.Stage3requiresaculture,ledbyseniormanagement,whichembracestransparencyofwhatisreallygoingoninthebusiness,withtheintenttocollaborateandfixproblems.Onlythencantheorganizationgettotherootcausetodriveacultureofprevention,ratherthanfirefighting.AsoneS&OPleadersaid
9“S&OPisacontactsport.Ourexecutivemeetingsarenotpretty.Wemayallcomeoutbruisedandhurt,butwegoafterproblemsandnextmonthitisbetter.Andweonlyget12shotsatitayear,sowehavetoconfronttheuglytruthateveryopportunity.”Thecompanymusthavetheculturefromthetopdowntosharethenumbers,thebrutal,uglyfactsandthefinancialimpactofdecisionsbothverticallyandhorizontallythroughtheorganization.
Becausethefinancialimpactofdecisionsandgapsismoreclearlyunderstood,acomfortlevelshoulddevelopinmeetingstoenableopennessandsharing.Peoplenolongergametheirmetricstolookgood,butbringforwardthetruthinaculturethatrewardspreventionandtransparency,ratherthanfirefightingandfudgingthenumbers.Transparencyisdirectlyrelatedtoanopenandhonestcompanycultureandalignedincentiveprograms.
Thereistransparencyoftheplanningprocessandinputandoutputacrossthecompany.Alignmentandprocesscapabilitiesenablefastcommunication,andthemidtermS&OPplanningprocessisalignedtotheoperationallevelthroughevolutionofrapidplanningcapabilities,sharingassumptionsanddecisionsandsupportedthroughevent-andexception-basedalerts.
InanefforttoincreasetransparencybeyondthetraditionalinternalboundariesofS&OP,organizationsarereachingouttokeycustomersandsuppliers.Procurementisbeingincludedintheprocess,especiallyinsupply-constrainedenvironmentsorwherethereisacomplexsupplynetworkwithhigh-riskpotential.Motorolacallsit“SupplierS&OP.”Withinthisenvironment,demandplannerscollaboratedirectlywithprocurementandkeysuppliers,orthird-partymanufacturers.Thisenhancesthecompany-to-companyrelationship,givesbetterdemandvisibilitytothesupplierandsupplyvisibilitytotheOEMandreducesthelatencyofgettingsuppliersinformation.
The Evolution of Managing DemandWithinthefirsttwostagesofS&OP,demandislookedatassomethingthat“happensto”theorganization.InlaterstageS&OP,especiallyStage4,companiesviewdemandassomethingtheycreateandshape.However,excessivedemandshapingcanthrowabusinessoutofbalance.Themorecompaniesshapedemand,themoretheyneedtobuildthecapabilitiestomanagepotentiallyincreaseddemandvolatility(seeFigure6).
EarlystageS&OPfocusesonsalesforecastaccuracy.InStage3S&OP,weidentifiedtheevolutiontocontinuouslyimprovingthecapabilitiestopredictdemand,withclarityastowhatdemandsignalsareofvalueinthevariousplanninghorizons.Thesewerethecommonthemesacrossindustriesandbusinessmodelswheretherecanbevastdifferencesindemandmanagementbestpractices.InStage3,thereisclearrecognitionfromthecommercialteamsoftheimportanceofdemandplanning.Theyinvolvetheirsalespeople,beingmoredisciplinedinkeepingthepipelineuptodateatthemixlevel.Marketingandproductmanagementalsobecomescriticaltopredictmidtermdemand.
Managingdemandtakesonanoutside-inapproach.Somecallitmarket-basedforecasting,withfocusonwhatthecustomercaresabout.Companiesanalyzesell-throughdata,identifymarketshiftsandcaptureotherindicatorstopredictbuyingpatterns.Demandinsightsfrommultiplesourcesarecritical,whetherfromtradepromotiontools,customerinputorgovernmentstimulusplans,etc.WhileStage3companieshaveinsighttothesedemandsourcesandusethedataindiscussionsaboutthefuture,theadvancedcapabilitytopullallthisdataintoacommonplanandmodeloutscenariosisdesired,butstillaworkinprogress.ThiswillgetyoutoStage4.
Figure 6. Seven Levers of Agility
Source:Gartner(October2010)
10Granularityofforecastingdifferedacrosscompanieswespoketo,mainlydrivenbyindustrynuances.Insomecases,itwasraisedupaleveltotheproductfamilyandfocusedonmarket-basedmacroeconomicindicators.Inothercases,theybuiltoutverydetailedforecastsbySKU/customer.Whatwascommonisafocusontherightforecastingtechniques,dataintegrity,therightplanninghierarchies,ongoingattentiontoimprovethedemandsignalsandmanagingbiasandFVA.
Whatwealsonoticedwasthatnomatterthelevelofforecastdetail,whenlookingout12to24months,thefocusshiftedtosimplification,majortrendsandtheimportanceofcross-functionaldialogue,andnottogetcaughtupinbecomingtooover-analyticalwiththenumbers.
Change of Focus — What’s in a Name?Althoughthetermsalesandoperationsplanningisusedgenerically,40%ofthecompaniesinterviewednolongercalltheirprocessS&OP.Why?Overtime,thetermS&OPhadcollectedpoorconnotationsorwasconsideredtobepurelyasupplychainprocess.Manytimes,S&OPhadbeengiventhestigmaofaprocesswithtoomanymeetingsoflittlevalueandtoofocusedoncurrentquarter.InStage3,S&OPmustbeconsideredabroad,cross-functional,business-planningprocesslookingout12to24months.
InthecaseswheretheoriginalS&OPprocesswastooshorttermandoperationallyfocused,anewprocesswasimplemented,oftenwithanewname.Wealwaysgetasked“Whatdotheycallit?”SomemakeasubtleshiftfromS&OPtosalesandinventoryoperationsplanning(SIOP)orexecutivesalesandoperationsplanning(eS&OP),whileothersembracetermslikeintegratedbusinessmanagement(iBm),or<insertcompanyname>businessplanning.Somehaveveryspecificnames,withnoapparentlinktothetermS&OPorbusinessplanning,butitworkedforthem.
Asweconductedourresearch,onenamestoodoutasthemostinnovativeandimpactful.Foryears,DanonestruggledtotransformitsoperationalS&OPprocessintoakeybusinessmanagementprocess,valuedbythegeneralmanagersandcommercialteams.In2007,theCEOcreatedtheburningplatformforchange,statingthatpoorservicelevelswerecostingthebusinesssalesduringtougheconomictimes.TheprojectteamrecognizedamajorrebrandingofS&OPwasrequired.PreviouseffortstocalltheprocessiBmandadvancedS&OPhadlimitedsuccess.Introducingafour-stageframeworkalignedto“America’sCup”sailing(fromwreck,toamateur,toprofessionaltochampion),theprocesswasrenamedglobalplanningsystem(GPS)tomirrortheglobalpositioningsystemusedwidelyforsatellitenavigation.ThenameGPSwasanimmediatehit.Asexplainedtothebusiness,yourGPSknowswhereyouare,youtellitwhereyouwanttogoanditplansthebestroute.ButtherealvalueofGPSisthatitautocorrectswhenyougoofftrack.Whatmorecouldgeneralmanagerswantfromaplanningprocesstorunthebusiness?Quickly,thisrebrandingbecameamajorfactoringettingtheprocesstransformationoutofneutral.GPStargetsthestrategicambitionofthebusinessandpilotsitskeysuccessfactors,somovingfroma
focusonsupplychainmetricstowardsharedbusinessdecisionsoftheboard.Thisbusiness-pilotingscopeengagesandcommitsallfunctionstoGPSsuccess.InDanone,GPSisvaluedbythegeneralmanagers,ownedbytheboardandlivedbytheorganization.Increaseinprofitandservicelevelshasvalidatedthissuccessstory.
Thisnewprocesslookedoutfurtherandinvolvedhigherlevelbusinessstakeholdersandfocusedonhigherleveldecisions,butwaslinkedthroughmetricstotheoriginalprocess.ThisishowlayeredS&OPprocesseshaveevolvedunderthegeneralS&OPbannerinmanycompanies.Thenameisirrelevant;itisabouthowtheprocessesaredesignedtomeetthebusinessneeds.
Sustaining Stage 3 Maturity
Building the Right CultureAStage2processneedsconstantsupportandfocusoncontinuousimprovement,butthisfocuschangeswithmaturity.InStage2,supplychainisconstantlypushingandencouragingparticipationfromsales,marketingandotherbusinessleaders.Theprocesscaneasilyslipbackwardwithoutthisattention.MovingintoandthenthroughStage3isahugeshiftinmind-set.Butonceitgetsrollingandtherightbusinessleadersseethevalue,itcreatesitsownmomentumandisnolongerasupplychainpush,butaline-of-businessownerpull.TheattentionamatureStage3processthenrequiresistoembracethisactiveparticipationfrombusinessownersandworktomaketheirliveseasierthroughefficientworkflow,fastandeasyaccesstovalue-addedinformationandautomationwherenecessary.
Culturally,themovetoopenness,transparencyandrewardingtherightbehaviorrequiresongoingchangemanagement.Identifyinganddevelopingprocesscoachesandplanningpowerusershelpssustaintheprocessandknowledgelevelofindividualsinthebusinesses.Theseindividualsreducetherelianceonacenterofexcellence(COE)oronconsultants.Also,somehavecreateda“steward”roletostreamlinetheconnectionbetweenlocalandglobalmeetings.Thispersonneedsstronginterpersonalskills,businessacumenandanin-depthunderstandingofthenumbersandthevariouslocalbusinessesinordertofacilitateanyreconciliationandrealignmentrequired.IdentifyingtherightpeoplefortheserolesanddevelopingtheirskillswasamajorfactorinsomecompaniesgettingtoStage3.
Use of a Center of Excellence (COE)AnS&OPCOEiscommon,especiallyinlargerorganizations.TheroleoftheCOEistohelpthebusinessesandregionscontinuouslyimprovetheirS&OPprocessand,ultimately,businessresults.
WhereCOEsexist,wefoundtheyprovideself-assessmenttools,scorecardsandworkbookstosupporttheprocessandidentifytheneedforimprovementandassistance.Butonethingwasclearfromtheresearch:theCOEdoesnotpushitselfonabusinessthatmayclearlyneedhelp.ThebusinesshastowanthelpandpulltheCOEresourcesin.COEresourcesaretooscarcetoputeffortintoagroupthatisculturallynotreadytomoveforward.
11AleadingchemicalcompanyhasHRresources,knownas“humanperformancespecialists,”intheCOE.Wheretherearesignificantculturalandpeopleissuesinabusiness,andifthebusinessrecognizestheneedtoaddresstheseissues,thesespecialistsarepulledintoassist.
Talent ManagementThemorestraincompaniesputontheirS&OPprocesses,themoretheyarerealizingthattheyneedtoconsiderthehumanaspectoftheprocess.S&OPcanbeveryemotionalandrequiresaspecialsetofskills.Leadersinthisareahavediscoveredvalueincreatinganenvironmenttorecruitanddevelopstrongleadership,planningandanalyticalskills,andgivetheseindividualsacareerpathtoretainthem.
Organizationsneedtotakestockintheindividualscurrentlyinplacetomakesureofthefollowing:
• Rolesandresponsibilitiesareclearlydefined.
• Skillsetsmatchthoserolesandresponsibilities.
• Thecurrentorganizationalstructureisalignedtosupporttheindividualsandexpectedchange.
• PropermentorsandexecutivecoachesareinplacetofacilitatetheS&OPjourney.
• Arealizationexiststhattruechangecomesfromthetop.
Alltoooften,companiescreatearevolvingdooroftalentedindividualsbynotunderstandingtheamountoforganizationalchangerequiredtoestablishandmatureanS&OPprocess,andintheenddonotsurroundtheindividual(s)involvedwiththeneededsupporttofacilitatethatchange.
The Role of TechnologyWhiletechnologyalonewillnotbethekeytomaturingtheS&OPprocess,itplaysacriticalrole.TogetfromStage2toStage3requiresgood,clean,credibleplanningandmetricsdataanda“singleversionofthetruth.”Sothereisaneedforunderlyingtechnologyandsystemstosupportthis.TypicalStage2toolsarestatisticalforecasting,supplychainplanningandinventoryoptimization.Foundationalelementsaredataquality,masterdatamanagement(MDM)andthenecessaryintegration.
AstheculturematurestowardStage3andthereismoretransparencyandbusinessownerparticipation,theprocessmustbesupportedbytheabilitytomakedecisionsfasterthroughtimelyinformation,andmoreefficientlythroughexceptionandalert-basedworkflows.Typically,technologyisrequiredforthis.InStage3,thedialogueshiftstowhat-ifandscenarioanalysis,andtoadvancethesecapabilitiesandgetintoStage4requiresanalyticsandmodelingtools.Theterm“rapidplanning,”aswellasthetoolstosupportit,isemergingasarequirementtogetthroughStage3.
Twocompanieswespoketosaidthattheyfocusedontheprocess,notthetechnology,andnowthelackoftechnologyisholdingthembackfromgettingbeyondearlyStage3.ButwhatgotthemintoStage3wasallaboutchangemanagementandthecriticalculturalshift.
ConclusionS&OPmaturityisajourney,and,asoneVPofS&OPdescribedit“acontactsport.”Donewell,itbecomestheprimarydecision-makingforumforthebusiness.ResearchshowstheprimarybenefitofS&OPisincreasedrevenue.Thisisnotsurprising;ifyouplantherightproductsandtheyareavailable,theywillsell.